The Business Edge Blog

December 18, 2012

Cash Flow Essentials for 2013

Wad of cash

I’ve talked about it before, but I think it’s worth talking about again as we head into a new year…….Cash is the lifeblood of every business.  Cash Flow is the movement of money into and out of your business.  It’s the cycle of revenue and expenses that make your business a “going concern” or not.

Cash Flow Management is the process of monitoring, analyzing and adjusting your income and expenses to maintain solvency.  I have seen highly profitable businesses go bankrupt because of poor cash flow management.

In good times and in bad there are two strategies of Cash Flow Management that small businesses need to implement to head off cash flow problems:

1)      Project cash flow for the coming months.  If you haven’t invested in an accounting package yet, do so now so that you use it throughout 2013.  The most common programs have built-in reporting features that make projections easy.

2)      Develop and implement strategies to maintain an adequate cash flow.  Push to collect accounts receivables faster – consider Due on Receipt terms – or invoice more frequently if you only invoice monthly now.  Pay your accounts payable on their due date, not before and not after – both cost you more money.

Before working with me, some of my business coaching clients have made the following mistakes that I want to be sure you avoid:

  • Not creating projections at all.  They try to manage cash flow by their bank balance.  I have seen business owners go without paying themselves because cash was short and they had to make payroll for everyone else.
  • Not sending invoices promptly.  People are much quicker to respond to invoices when they have just received the benefit of your services.  This is an easy task to outsource to a Virtual Assistant if this type of paperwork bogs you down.
  • Finding ways to shorten the cash flow cycle.  This includes keeping a sharp eye on inventory levels and not overbuying because it looks like you can save a few cents by buying a larger quantity – tying up more cash for a longer period of time.
  • Leaving the planning to the accountants.  Particularly in times of tight credit, lenders will be more willing to work with small business owners who are savvy when it comes to their business finances.  Lenders know that business owners who have implemented good cash flow management, more than any security interest or other protective measure, have the best ingredient for a successful lending relationship that minimizes their risk.

I wish you all the very best in 2013!  Let me know how I can help you make this year your very best year yet in the comment section below.

Until next time, remember – Mind Your Business!

April 19, 2011

Cash Flow – Collecting Your Due

Interesting question from Ron (Helpful Herb) in response to a recent post. ……”Any suggestions on how to improve cash flow?  Receivables are nice but I can’t spend them until they are paid.”

A number of my clients have asked the same question recently.   

Cash flow is tight for some and collecting quickly is key to survival.  After reviewing their procedures, I have found that some clients have major delays in their billing.  I can tell you that the later people receive an invoice after the service is provided, the longer they delay the payment.  I don’t know why, it seems to be a human nature thing.  

Consider creating an invoice on the spot.  Think of all the times you have paid for a service immediately – you expected to didn’t you?  You simply learned what was due and paid it – right then and there.  Examples that have occurred in my life recently are a haircut, a dentist appointment and house cleaning.  If you think you can’t create an invoice on the spot, comment below and tell me why you can’t.  I may have some ideas for you.   

If you still think you can’t create an invoice on the spot – which encourages getting paid immediately – set aside time each week to invoice for the week’s work.  One of my clients decided to create invoices at the end of each day.  That’s a great concept, but may not work for all of us.  

When you create your invoice, what terms do you provide?  I encourage clients to review their terms.  If you are giving your customers 30 days to pay, then don’t be surprised if they mail the check on the 30th day or later.  Consider changing your terms to “due on receipt”.  It will encourage some of your customers to write the check when they open the envelope or open the email containing the invoice. 

How long should you wait to re-send an invoice that has not yet been paid?  No longer than monthly.  Don’t be shy about highlighting the fact that the payment is past due.  The people who invoice you are not shy.  Pay close attention to the bills you receive and copy best practices. 

Make the changes you need to.  It will improve your cash flow situation.  Comment below on the changes you are committing to make in your business and your success stories.

August 17, 2010

What Businesses Ought to Know About Guarding Their Cash Stash

 

Yours may be one of the businesses that has run into cash flow issues during these tight economic times. Do not take this lightly since 82% of business failures are due to cash management problems according to a study by a US bank. Let’s look at important concepts of cash management.

First, your available cash doesn’t necessarily directly follow your sales. Income from sales does not always immediately hit your bank account. There is often a time lag to doing business; the more that you depend on sales to other businesses, the longer the time delay your business will experience between incurring the expense and being paid. When you invoice another business, you can not count on that cash until it arrives. Even if you work only with individuals, you have a percentage of clients who will be late in paying for your services.  If you bill insurance providers for payment, there is always a delay.

Secondly, if your business includes the sale of physical products, this will have a major impact on your cash flow. You will incur the expenses for development and production of that product, or acquisition of the product before you have any cash from sales. Inventory is an expensive element of doing business, but if planned carefully, can be very profitable.

Finally, it costs money to grow your business. Many entrepreneurs make the mistake of not investing any money in their business growth, but others try to grow too rapidly and lose track of the expenses that growth requires. Being able to strike a balance between growth and cash required is one of the traits of a successful entrepreneur.

Use the idea of working capital to monitor your business. Your working capital is the money in the bank that allows you to pay your bills, keep up with ongoing expenses, purchase inventory and generally stay in business in the time lag that you are waiting to be paid by your customers. Know what this amount needs to be and adapt your business practices in order to maintain it.

If you are ready to grow your business, let’s talk!  That’s one of many great times to hire a business coach!

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